LIVE GST Certification Course by CA Arun Chhajer begins 27th April. Register Now!!

TDS - Depreciation on lease of P&M

PUNEET GARG (DY MANAGER (FINANCE & ACCOUNTS)) (27 Points)

21 September 2011

OURS IS AMNUFACTURING PLANT AND WE ARE HAVING P&M ON LEASE BASIS BUT OWNERSHIP IS OURS ON MINIMUM LEASE PAYMENTS (MLP). WE HAVE BIFIRCATED THE MLPs IN PRINCIPAL 7 INTEREST AND HAS CAPITALISED THE DISCOUNTED VALUE OF PRIIPAL PORTION AT THE TIME OF AQUSITION & CREATED A LIABILITY WITH SAME AMOUNT. ON PAYMENT OF MLPs WE CHARGE INTEREST PORTION TO "INTEREST EXPENSES" & PRINCIPAL PORTION IS ADJUSTED IN LIABILITY CREATED ON AQUISITION.

NOW MY QUESTION CAN WE CLAIM DEPRECIATION OVER THE ASSET IN BLOCK OF ASSTES UNDER INCOME TAX ACT OR NOT?

ARE WE LIABILE TO DEDUCT TDS ON MLP PAYMENT OR NOT AND ON WHAT AMOUNT INTEREST /PRINCIPLE/BOTH?

Reply
Follow
Share

3 Replies

(Guest)

As per explanation to sec (1):-

depreciation is available to lessor. circular no.2 of 2001 dated feb 9 2001 has cleared that as -19 has nothing to do with allow of dep in It act.

but as per case law IFCI vs CIT (2005) 4 SOT 223 Delhi. lessee is entitled to dep. where leasing agreement is mere financing agreement and if he can excercise all the right of ownership on his own not on behallf of lessor he can claim dep. as -19 has no relation with it only criteria is ownership.

(Guest)

And as far as TDS is concerned i think it would be deducted on both as we call it lease rent together INTT & MLP are terms of AS-19 & IT ACT does nt recog. it so it woulld be deducted on both u/s 194-I

Ateeq (CA - Final) (213 Points)
Replied 22 September 2011

In my opinion you charge TDS separately on the lease amount under section 194-I and on the interest payment if payment exceeds Rs. 5000 as per section 194-A.